After the discovery of oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiyev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury)" The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.
The participation of LUKOIL in two projects increased the share of Russia in the total amount of future production of oil in the Caspian Sea. After Soviet republics rich in resources resorted to an open economy, multinational foreign companies from West were the first to come to their fields. At first Russia did not consider these projects a priority. An opportunity to change the situation appeared when the largest Russian companies became participants in the "Karabakh" project. To some extent, the situation changed after the participation of LUKOIL in the Azeri-Chirag-Guneshli project. The Rosneft company also attempted to take part in the project, but just like other Russian companies it was prevented from doing so by problems which existed in the legal framework of Russia at the time. Similar problems shackled activities of other Russian oil companies as well. 4 For this reason, they were inferior to western companies in terms of the development of new deposits.
For example, Russian oil and gas companies started to participate in the development of the Mangyshlak field only 2 or 3 years after the Western companies started to. Participation in the modernization and development of the Atyrau refinery at the Kazakh Kumkol field, with reserves estimated at 42 million tons, was no less important for LUKOIL. The question was discussed of the possible involvement of LUKOIL in the development of the Tengiz field together with the Chevron company. The state lobbied the interests of the company. Russian Prime Minister Viktor Chernomyrdin expressed his gratitude to President Nursultan Nazarbayev for his confidence in LUKOIL, which participated in the development of the oil and gas industry of Kazakhstan.
The state remained the main shareholder of LUKOIL until 1995, and, according to the executive director of the Department of Relations between the government, public and media of LUKOIL, Alexander Vasilenko, "LUKOIL was entrusted with a special role, the role of a company that in fact was representing the state interests of Russia in the near abroad."
The area of the prospective structure of the Karabakh field amounts to 427 square meters. It is located about 125 kilometers east of Baku and 220 km from the Azeri and Chirag-Guneshli fields. Investments in the contract were estimated to amount to $2 billion. With reserves at 150 million tons of oil, revenues were to exceed $15 billion based on 1997 prices for oil. 50 % of the profit received from the Karabakh deposit was to belong to Azerbaijan and the remaining 50 % to the other participants in the agreement. In the next 22 years the share of Azerbaijan was to amount to 80% and the share of foreign investors – to 20%. Naturally, SOCAR was as interested in the contract as LUKOIL was. The oil bonus allocated to the Republic of Azerbaijan for development of the Karabakh field by the international consortium was to amount to $105 million. It was assumed that any deposits to be discovered at the Karabakh field were to be developed, provided they were economically beneficial to the project.
Transporting hydrocarbons within the country was not a problem. In 1997, in the Azerbaijani part of the Caspian Sea there already had been a natural gas pipeline linking the Chirag-1 platform with the internal distribution system of the country, and a pipeline that connected Chirag-1 and Sangachal-1. It was planned that any new deposit would be connected to the existing system of gas and oil pipelines. No consortium could build its own pipelines. The detection of associated gas could not pose any problems to contractors since, according to the contract, contractors were to pass it to SOCAR. In the case of a gas reservoir a contractor had two options to choose from: either develop the field, in which case the contractor had to find markets for it, or in the case of not finding a market, the contractor had the right to cease the development of the gas field. But if the board of SOCAR showed interest in natural gas, it remained in the country at an agreed price. SOCAR was able to pay for gas to the contractor with an equivalent of crude oil. Thus, foreign companies had an opportunity to sell oil and to recover their costs. Volumes of oil and gas were estimated in an equivalent manner, based on the price factor.
Companies participating in the project planned to produce the first oil in 2001. A consortium called the International Caspian Oil Company (CIOC) was created for the implementation of the contract.
At the time of the formation of of the CIOC the share of contracting parties in it was the following: LUKOIL International Ltd - 12.5%; Agip Azerbaijan - 5%; Pennzoil - 30%; LUKAgip - 45%; SOCAR - 7.5 %. 3 The board of the CIOC was established at a meeting of partner companies in Milan. On April 18th 1996 the company was incorporated in the Cayman Islands and on July 24th 1996 it was registered by the Azerbaijani Ministry of Justice.
